Pellegrini had a one-season spell in charge of Real Madrid before joining Malaga in 2010, shortly after Qatar's Sheikh Abdullah Bin Nasser Al-Thani bought the club.

This season the 59-year-old guided "Los Boquerones" to the heady heights of the Champions League quarterfinals, losing to one of this weekend's finalists, Borussia Dortmund.

But Pellegrini said he was now standing down for "sporting reasons" -- not because of the club's financial problems. Malaga confirmed to CNN that the head coach would be leaving at the end of the season.

The Spanish club agreed Pellegrini could leave despite having two years left on his contract.

"My coaching staff and I are separating from Malaga but our union with this city will be eternal," Pellegrini said in a social address to the Malaga Provisional Council.

"We leave the club qualified for Europe with the mission accomplished. We had a time with the club that was very rewarding."

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Pellegrini plans to stay at the helm for Malaga's final two matches. The club, sixth in the La Liga standings, plays Deportivo La Coruna at home before closing the season against Barcelona at the Nou Camp on June 1.

"Sunday will be my last match at La Rosaleda and will be very exciting for me," Pellegrini said.

"I'm not leaving due to the matter of money but looking for a project that allows me to develop my profession conveniently."

Pellegrini continued in a statement on the club's website: "Everyone has the right and obligation to follow their chosen path, and Malaga must do the same. The club requires a realistic project next season.

"Malaga had a past without Manuel Pellegrini, and will also have a future without Manuel Pellegrini

"I will be eternally grateful to the owners of the club, who always had blind faith in me. The most important foundation of this club is the strength and support from the fans."

Carlo Ancelotti has indicated he wants to leave French champion Paris Saint-Germain, possibly to replace outgoing Real Madrid boss Jose Mourinho, who in turn has been linked with a return to Chelsea in place of Rafa Benitez.

Tony Pulis has also left EPL side Stoke City while Roberto Martinez is said to be considering his position at Wigan following relegation from England's top flight.

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As Pellegrini pondered his future, UEFA ruled on Malaga's eligibility to compete in European competitions on Wednesday.

Malaga fell foul of the European governing body's Financial Fair Play rules in 2012 and was subsequently handed a season-long ban from its tournaments.

Malaga owed player wages and has debts with other football sides as well as the Spanish tax authorities, claimed UEFA.

But UEFA's Club Financial Control Body (CFCB) confirmed that Malaga has now fulfilled conditions imposed upon it and a second year of "suspended sanctions that had been imposed will not apply."

Malaga was allowed to continue in this season's Champions League but is not eligible to compete in next season's Europa League even if the team qualifies for one of the three places on offer to Spanish sides.

The club is awaiting a decision, due next month, on its appeal against this ban to the global Court of Arbitration for Sport.

Malaga was reported to have splashed out $80 million in 2012 assembling a squad containing big names like Spain's double European champion Santiago Cazorla and Dutch defender Joris Mathijsen, but the many top players left as the club cut its costs.